Japan Foods Holding - RHB Invest 2018-05-10: Strong FY18 Results

Japan Foods Holding - Strong Fy18 Results

We expect Japan Foods Holding to deliver 10-15% annual profit growth with the addition of new restaurants, launch of new franchise brands, continued focus on cost control, aided by a recovery in consumer sentiment.

FY18 net profit of SGD5.8m (+24% y-o-y) was slightly ahead of our expectations. This was largely due to higher-than-expected gross profit margin and lower-than-estimated tax rate in 4QFY18.

Second year of > 20% profit growth.

Japan Foods Holding (JFH) reported a 24% increase in FY18 (Mar) profit, aided by a 3.6% y-o-y growth in revenue to SGD67.8m, and 1.4ppts increase in net profit margin to 8.5%. This is the second consecutive year of >20% growth in profit registered by the group.

FY17 profit had grown by 23% to SGD4.7m.

Key franchise brands continue to perform well.

Revenue growth continued to be driven by key franchise brands – Ajisen Ramen, Menya Musashi, Osaka Ohsho and the newly-launched Shitamachi Tendon Akimitsu. Except for Osaka Ohsho, which saw a marginal y-o-y decline in revenue, all other brands witnessed y-o-y improvements in earnings.

Revenue contribution from the Ajisen Ramen, Menya Musashi and Osaka Ohsho brands increased to 74.4% of total revenue in FY18, from 71.9% of total revenue in FY17.

Higher dividend per share (DPS).

Japan Foods Holding (JFH) has proposed a final dividend of SGD0.013 per ordinary share, which together with the interim dividend of SGD0.008, brings total dividends declared in FY18 to SGD0.021. This is the highest ordinary dividend that Japan Foods Holding has paid since listing (excluding the special dividends paid in FY13 and FY14).

FY18’s DPS puts the group’s dividend yield at 4.1%, which is the highest amongst dividend-paying listed restaurants on the Singapore Exchange.

Rising cash balance.

Cash balance as at end-FY18 stood at SGD21.9m (+8.2% y-o-y).

We believe Japan Foods Holding (JFH) could use this strong net cash position to either continue paying out higher dividends and/or explore opportunities to expand its presence in the ASEAN region by way of JVs and acquisitions.

Maintain BUY.

Despite its industry-leading dividend yield, gross profit margin. and strong earnings growth prospects, Japan Foods Holding (JFH)’s stock is trading at a significant discount to peers, which we assess as unjustified. Moreover, its net cash position accounts for 25% of the group’s market cap.

We maintain our BUY rating on the stock with unchanged Target Price of SGD0.63.

We will be reviewing and updating our earnings estimates and Target Price after the analyst briefing to be held this evening.

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